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Monday, January 01, 2007

Consequences of Oil Dependency

LOSING INFLUENCE

One immediately thinks of Iran, Russia, Iraq and Venezuela when speaking of energy security. The steadily increasing dependency on oil for energy has implications not only for America, but for the global economy. What we want to find out is how America will fair during this period.In this respect, America is concerned with losing face. Our diminished ability to influence Iran coupled with Russia's blatant exertion of its influence of natural resources over its neighbors has created an air of helplessness, temporarily, and an increased sense of political mortality.

It is important to highlight the fact that rising energy costs influence everyone. As the world's largest consumers of energy [America] we tend to feel the market fluctuation of cost much more than other global consumers. The recent demand driven price hike in commodities is something that we should use to wake us out of our complacency. The reason is at the heart of the issue; oil dependency undermines America's ability to influence other countries.When looking at this issue you obviously take into consideration the effects of supply and demand.

How do we abate demand in a way to prolonging the use of current levels of oil production? Some of the most common and popular suggestions are alternative fuels such as ethanol, electricity, corn and peanut oil, nuclear, etc. In reality, none of these suggestions are a practical replacement for fossil fuels...at the moment. What we do now, however will begin to bear fruit a decade or more down the line and that is why these alternatives are important. In addition, we can also temper our personal use of energy in order to shrink our "carbon footprint" on the Earth. In a very brief and very crude nutshell; this is what we can do on our end to alleviate the pressures of possibly permanent higher fuel costs.

The other side to this story is supply. In this, you and I can do very little to change it. Fossil fuels are a finite resource and the only question that remains is a matter of when, not if, it will diminish. Some say that the time of $50 barrels of oil are gone and that we are reaching peak production for "cheap" oil. It doesn't take much to realize that if the supply of oil on the market is kept at current levels or reduced, that it would in turn, increase the price (per barrel) of oil. So...why would you [a member of OPEC for instance] have any impetus whatsoever to increase production?

HAKUNA MATATA

The answer is, "You don't." Oil exporting countries can do two things to increase supply in the market. They can increase production in their existing oil fields or they can continue to explore new fields to meet the increasing global demand. The problem with the latter is that it takes time. A new field found today won't start moving barrels for at least a decade. In the near term then we are left with not many options to increase supply. Unfortunately, it looks like the burden will have to fall on the laps of you and me to economize our own use of energy.

Perhaps it's the threat of climate change, threats to the animal population, or the affordability of living a lifestyle of consumption that we've grown accustomed; whatever your personal motivating factor is remember that we can only influence our own use of energy. At the same time there is absolutely no promise that the cost of oil will continue to drop or sustain at its current levels. Furthermore, the effects on our environment caused by carbon emissions will begin to show themselves more as time goes on (around the same time that prices should be at all time highs by most estimates). Make no mistake, in a few years we will be asking ourselves these same set of questions, but by then the situation will be much dire and much more apparent than it seems to be now.